Standard & Poor’s upgraded covered bonds issued by AIB Mortgage Bank from A+ to AA- on Friday after the Irish issuer on Thursday published a voluntary public commitment to maintain overcollateralisation (OC) of at least 44%.

The rating agency said it upgraded the covered bonds after applying its criteria for rating Irish RMBS (published on 30 March) and taking into account the public OC commitment.

“This public overcollateralisation commitment removes the need for the negative adjustment that we previously made to the number of collateral-based notches of uplift,” it said.

The programme can now achieve four notches of collateral-based uplift under S&P’s methodology and the rating agency said that the available credit enhancement of 75.4% is commensurate with the target credit enhancement necessary to achieve all four notches, which it put at 39%.

Maureen Schuller, head of covered bond strategy at ING, noted that, coming after a Moody’s upgrade of the covered bonds from A3 to Aa2 in May, AIB’s covered bonds have returned to credit quality step 1 (CQS1) from a second best ratings perspective, which she said is a “performance positive” for the bonds.

The covered bonds’ rating is on negative outlook to reflect the negative outlook on the rating of the issuer’s parent, Allied Irish Banks, said S&P.